Question 1

Which of the following statements regarding the earned income credit is true?

Accepted Answer

The earned income credit is a refundable credit, meaning that if the credit exceeds the taxpayer's tax liability, the taxpayer can receive the excess as a refund. The credit amount is calculated based on the taxpayer's earned income, with a higher credit amount available to taxpayers with lower incomes. Therefore, it is possible for a taxpayer with more earned income to receive less credit than a taxpayer with less earned income. Option A is incorrect because the earned income credit is refundable, not nonrefundable. Option C is true - a taxpayer who is 65 or older and doesn't have any dependents may be eligible for the earned income credit. Option D is incorrect, as the credit is only available to taxpayers with earned income, not investment income.

Question 2

Which of the following is not true of the extension to file an individual tax return?

Accepted Answer

Extensions to file an individual tax return extend the due date for filing the return, not the due date for any tax payments due. Tax payments are still due by the original due date of the return, even if an extension to file is granted.

Question 3

Sheryl's AGI is $250,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722. She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded)amounts? (Assume she makes the required payments each quarter.)

Accepted Answer

The answer of Sheryl's AGI is $250,000. Her current tax...

Question 4

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?

Accepted Answer

Nonrefundable personal and business credits are applied first to reduce the tax liability to zero if possible. Any remaining liability can then be offset by refundable credits, which can result in a refund if they exceed the remaining tax liability.

Question 5

Looking at the following partial calendar for April, when will individual tax returns be due?

Accepted Answer

The answer of Looking at the following partial calendar for...

Question 6

Cassy reports a gross tax liability of $1,000. She also claims $400 of nonrefundable personal credits, $700 of refundable personal credits, and $200 of business credits. What is Cassy's tax refund or tax liability due after applying the credits?

Accepted Answer

The answer of Cassy reports a gross tax liability of...

Question 7

If an employer withholds taxes from an employee, in general, when are these taxes treated as paid to the IRS?

Accepted Answer

Taxes withheld from an employee are treated as paid evenly throughout the tax year, regardless of when during the year the money was actually withheld. This approach simplifies the tax payment process for both the IRS and the taxpayer.

Question 8

What happens if the taxpayer owes an underpayment penalty, but does not compute it on Form 2210?

Accepted Answer

If the taxpayer owes an underpayment penalty but does not compute it on Form 2210, the IRS will compute and assess the penalty. It is important for taxpayers to accurately calculate and report their tax liability to avoid penalties and interest.

Question 9

Which of the following does not affect the amount of the earned income credit?

Accepted Answer

The amount of the earned income credit is not affected by the amount of credit taken in previous years. It is determined by factors such as filing status, number of qualifying children, and the taxpayer's adjusted gross income (AGI), but not by the credit amount in previous years.

Question 10

Which of the following taxpayers (all age 40)is/are required to file a return?

Accepted Answer

The question does not provide information about the income or other factors that may affect the filing requirements, so the default rule applies. Taxpayers who are 40 years old and have gross income that exceeds the standard deduction ($12,200 for 2019) plus the additional standard deduction for being 65 or older ($1,650 for 2019) are required to file a tax return. Assuming Jenny and Jim are married and filing jointly, they would need to file a return if their gross income is at least $25,050 ($12,200 + $12,200 + $1,650). Allen and Timmy may or may not need to file, depending on their income.

Question 11

Which of the following is not true of the lifetime learning credit?

Accepted Answer

The lifetime learning credit is a nonrefundable credit, can be claimed by taxpayers who have graduated from college and are taking professional training courses to improve their job skills, and is subject to phase-out based on the taxpayer's AGI. However, a taxpayer cannot claim a credit for each dependent's qualifying expenses as this credit is only available on a per-taxpayer basis.

Question 12

Carolyn has an AGI of $38,000 (all from earned income)and two qualifying children and is filing as a head of household. What amount of earned income credit is she entitled to? (Exhibit 8-10)

Accepted Answer

The answer of Carolyn has an AGI of $38,000 (all...

Question 13

Which of the following statements about estimated tax payments and underpayment penalties is true for individual taxpayers?

Accepted Answer

The answer of Which of the following statements about estimated...

Question 14

Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This threshold is generally the ________.

Accepted Answer

The threshold for requiring to file a tax return is generally the applicable standard deduction amount. This is because if your income is below this amount, you typically do not owe any taxes and therefore are not required to file a tax return, unless you have other filing requirements or need to file to claim a refund.

Question 15

Which of the following statements regarding credits is correct?

Accepted Answer

Business credits that are generated in one year but are not utilized in that year can often be carried back to the previous year and then forward to future years, allowing businesses to apply these credits to reduce tax liability in other years.

Question 16

How could an individual obtain a business tax credit?

Accepted Answer

All of the choices listed can result in a business tax credit. Self-employment activities can result in a variety of tax credits such as the self-employment tax credit, while flow-through from a partnership or S corporation can provide various business-related credits. Working overseas and obtaining a foreign tax credit can also result in a tax credit.

Question 17

Which of the following statements concerning estimated tax payments and underpayment penalties for individuals is true?

Accepted Answer

All of the statements are true. Underpayment penalties are determined on a quarterly basis, estimated tax payments are due on April 15, June 15, September 15 of the current year, and January 15 of the following year (unless these dates fall on a weekend or holiday), and the amount of penalty depends on the amount of underpayment among other factors.

Question 18

If there is not enough gross tax liability to use the foreign tax credit, ________.

Accepted Answer

The answer of If there is not enough gross tax...

Question 19

Which of the following tax credits is fully refundable?

Accepted Answer

The earned income credit is fully refundable, meaning that even if the credit exceeds the taxpayer's liability, they will still receive the full amount of the credit as a refund. The American opportunity credit and dependent care credit are both partially refundable, but not fully refundable.

Question 20

Why would a taxpayer file a tax return if not required to do so?

Accepted Answer

A taxpayer would file a tax return if not required to do so in order to claim a refund of taxes paid. If the taxpayer had taxes withheld from their income, but their income was below the income threshold requiring them to file a tax return, they could file anyway to claim their refund.

Quiz 8: Individual Income Tax Computation and Tax Credits